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- BlackRock CEO Larry Fink raised the prospect of more financial institution “seizures and shutdowns” going down.
- Markets stay on edge even after regulators took decisive motion on Silicon Valley Bank, he said.
- Other “spectacular financial flameouts” after tightening cycles embrace the S&L disaster, he added.
BlackRock CEO Larry Fink sees the potential for more financial institution failures in the US following the collapse of Silicon Valley Bank, with the executive flagging dangers that will have been created in the US monetary system after a long time of easy-money financial and monetary insurance policies.
Fink, in his annual letter to shareholders released Wednesday, addressed last week’s seizure of SVB following its asset-liability mismatch. Separately, regulators shut down crypto-friendly Signature Bank. He said swift regulatory responses helped stave off contagion dangers, however markets stay on edge.
A bounce in rates of interest since March 2022 spurred billions in losses in Silicon Valley Bank’s bond holdings, sparking last week’s run on deposits.
Fink said the autumn of SVB recalled different durations of “spectacular financial flameouts” following prior tightening cycles. Those embrace the “slow-rolling” Savings and Loan Crisis in the Eighties and the early Nineties when hundreds of monetary establishments failed, and the 1994 chapter of Orange County, California.
“We don’t know yet whether the consequences of easy money and regulatory changes will cascade throughout the U.S. regional banking sector (akin to the S&L Crisis) with more seizures and shutdowns coming,” wrote Fink, who heads the world’s largest asset supervisor.
Since SVB’s collapse, shares of regional banks like First Republic and PacWest have tumbled on considerations their steadiness sheets had comparable dangers.
It appears inevitable that some banks might want to pare lending to shore up their steadiness sheets and that stricter capital requirements for banks are probably on the way, he said.
“As banks potentially become more constrained in their lending, or as their clients awaken to these asset-liability mismatches, I anticipate they will likely turn in greater numbers to the capital markets for financing,” said Fink about his longer-term view.
“And I imagine many corporate treasurers are thinking today about having their bank deposits swept nightly to reduce even overnight counterparty risk.”
